Selected year-end financial statements of Cabot Corporation follow. (All sales w

Question

Selected year-end financial statements of Cabot Corporation follow. (All sales were on credit; selected balance sheet amounts at December 31, 2016, were inventory, $56,900; total assets, $229,400; common stock, $88,000; and retained earnings, $41,822.) CABOT CORPORATION Income Statement For Year Ended December 31, 2017 Sales Cost of goods sold Gross profit Operating expenses Interest expense Income before taxes Income taxes Net income 455,600 297,950 157,650 99,400 4,700 53,550 21,572 $ 31,978 CABOT CORPORATION Balance Sheet December 31, 2017 Liabilities and Equity Assets Cash Short-term investments Accounts receivable, net Notes receivable (trade)* Merchandise inventory 22,000 Accounts payable 29,600 Income taxes payable 34,150 Long-term note payable, secured by $ 16,500 3,600 3,300 8,800 Accrued wages payable 6,000 68,400 mortgage on plant assets Prepaid expenses Plant assets, net Total assets 2,750 Common stock 150,300 Retained earnings 88,000 73,800 253,600 253,600 Total liabilities and equity *These are short-term notes receivable arising from customer (trade) sales Required: Compute the following: (1) current ratio, (2) acid-test ratio, (3) days' sales uncollected, (4) inventory turnover, (5) days' sales in inventory (6) debt-to-equity ratio, (7) times interest earned, (8) profit margin ratio, (9) total asset turnover, (10) return on total assets, and (11) return on common stockholders' equity. (Do not round intermediate calculations.)

Explanation / Answer

Answer of part 5:

Average Inventory = (Beginning Inventory + Ending Inventory) / 2
Average Inventory = ($56,900 + $34,150) /2
Average Inventory = $45,525

Inventory Turnover = Cost of goods sold / Average Inventory
Inventory Turnover = $297,950 / $45,525
Inventory Turnover = 6.54 times

Days’ Sales in Inventory = 365 / Inventory Turnover Ratio
Days’ Sales in Inventory = 365 / 6.54
Days’ Sales in Inventory = 55.81 or 56 days

Answer of Part 7:

Times Interest Earned = Net Operating Income / Interest Expense
Times Interest Earned = ($157,650 - $99,400) / $4,700
Times Interest Earned = $58,250 / $4,700
Times Interest Earned = 12.40

Answer of Part 8:

Profit Margin Ratio = Net Income / Sales *100
Profit Margin Ratio = $31,978 / $455,600 *100
Profit Margin Ratio = 7.02%

Anwer of Part 9:

Average Total Assets = (Beginning total assets + Ending total assets) /
Average Total Assets = ($229,400 + $253,600) /2
Average Total Assets = $241,500

Total Assets Turnover = Sales / Average Total Assets
Total Asset Turnover = $455,600 / $241,500
Total Assets Turnover =1.89 times

Answer of Part 10:

Return on Total Asset = Net Income / Total Assets
Return on Total Assets = $31,978 / $253,600
Return on Total Assets = 12.61%

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